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Module Four Homework Assignment Exhibit A James Trading Corporation Balance Sheet December 31, 20XX Assets $...

Module Four Homework Assignment

Exhibit A

James Trading Corporation

Balance Sheet

December 31, 20XX

Assets

$

Liabilities and Equity

$

Cash

23,015

Accounts receivable

141,258

Accounts payable

184,372

Inventory

212,444

Long term debt

168,022

Total current assets

376,717

Total liabilities

352,394

Net Plant and equipment

711,256

Common Stock

313,299

Other assets

89,879

Retained earnings

512,159

Total equity

825,458

Total Assets

$1,177,852

Total Liabilities and Equity

$1,177,852

James Trading Corporation

Income Statement

December 31, 20XX

Income Statement

$

Sales

$2,130,000

Cost of goods sold

(1,015,000)

Gross margin

1,115,000

Operating expenses

(878,000)

Depreciation

(16,030)

Operating income

220,970

Interest expense

(10,011)

Earnings before taxes

210,959

Income taxes

(54,000)

Net income

$156,959

Industry Average Ratios

Item

Ration

Current ratio

2.1

Quick ratio

0.8

Days in inventory

92

Days in accounts receivable

63

Gross margin

23.9%

Net margin

12.3%

Long term debt to equity ratio

1.0

Interest coverage

5.6

ROA

5.3%

ROE

18.8%

1. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the current ratio.

2. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the quick ratio.

3. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute days outstanding in accounts receivable.

4. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the gross margin.

5. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the net income percentage.

6. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the long term debt to equity ratio.

7. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the interest coverage.

8. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the ROA.

9. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the ROE.

10. Using the Exhibit A document, compute the following ratio, compare it to the industry average, and comment. Compute the ROE using the DuPont Model.

Solutions

Expert Solution

Question 1

Current Assets = Cash + Accounts receivable + Inventory

Current Assets = $23,015 + $141,258 + $212,444

Current Assets = $376,717

Current Liabilities = Accounts payable = $184,372

Calculate the Current Ratio -

Current Ratio = Current Assets/Current Liabilities = $376,717/$184,372 = 2.04

The current ratio of James Trading Corporation is 2.04

The current ratio of Industry is 2.1

It can be seen that current ratio of James Trading Corporation is lower than the industry average.

This means while average firm in industry held $2.1 of current assets against the $1 of current liabilities, James Trading Corporation holds $2.04 of current assets against the $1 of current liabilities.

Thus, James Trading Corporation is less financially healthier than the average firm in the industry with respect to current ratio.

Question 2

Quick Assets = Cash + Accounts receivable

Current Assets = $23,015 + $141,258

Current Assets = $164,273

Current Liabilities = Accounts payable = $184,372

Calculate the Quick Ratio -

Quick Ratio = Quick Assets/Current Liabilities = $164,273/$184,372 = 0.89

The quick ratio of James Trading Corporation is 0.89

The quick ratio of Industry is 0.80

It can be seen that quick ratio of James Trading Corporation is higher than the industry average.

This means while average firm in industry held $0.80 of quick assets against the $1 of current liabilities, James Trading Corporation holds $0.89 of quick assets against the $1 of current liabilities.

Thus, James Trading Corporation is more financially healthier than the average firm in the industry with respect to quick ratio.

Rahul Sunny answered 1 year ago
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